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Thursday, October 06, 2016

ICYMI: Walgreens Boots Alliance (WBA) has been lining up a broad range of preferred network agreements. In its latest move, Walgreens will unexpectedly displace CVS this December in the retail network for TRICARE, the healthcare program for uniformed service members, retirees, and their families. Click here to read the announcement. I provide additional details below.

WBA appears to be sacrificing profits for volume. The scope and diversity of the deals, however, clearly reflects WBA’s previously articulated industry-wide partnering strategy. It also provides an intriguing contrast with CVS Health’s closed system approach.

By way of background, TRICARE is the Department of Defense (DoD) healthcare program that serves 9.5 million Active Duty Service members (ADSMs), National Guard and Reserve members, retirees, their families, survivors, and certain former spouses worldwide.

Express Scripts provides pharmacy benefits management services for TRICARE. These services include administering a retail pharmacy network, mail order pharmacy operations, claims processing, and beneficiary support services. The contract began on May 1, 2015, and runs for seven years. TRICARE beneficiaries can fill prescription medications at military treatment facility (MTF) pharmacies, through home delivery (via Express Scripts’ mail pharmacy), at TRICARE retail network pharmacies, and at non-network pharmacies.

Mail pharmacy has accounted for a growing share of TRICARE’s drug spending and prescription dispensing activity. Having considered all of TMOP’s costs, the DoD’s Inspector General found that TMOP cost 16.7% less than retail pharmacies. (source) Consequently, as of October 2015, all TRICARE beneficiaries except active duty service members have been required to get certain brand name maintenance drugs through either the TMOP program or from a military pharmacy. Otherwise, beneficiaries must pay the full cash-pay prescription cost at a retail pharmacy. TRICARE mail prescription volume has grown significantly as a share of total prescriptions dispensed, from 31% in October 2011 to 59% in September 2015.

[UPDATE: Note that TRICARE doesn’t technically have a preferred pharmacy network. See featured comment below from Express Scripts.]

SUPER DEALS

In alphabetical order, here are WBA’s five other key preferred pharmacy deals that have been announced over the past year:

3) Prime Therapeutics: In August, WBA announced an innovative deal with PBM Prime Therapeutics. Starting in January 2017, Walgreens will become the national preferred pharmacy for Prime’s plan sponsor clients. Unlike the OptumRx deal, this agreement includes all types of retail prescriptions—generic, brand-name, 30-day, 90-day, etc. Additionally, WBA and Prime will combine their respective central-fill mail and specialty pharmacies into a new business. Full details and analysis here: Why the Walgreens/Prime Deal Could Transform the PBM Industry.

WBA’s broad ambitions extend include two other notable consolidations:

The Rite Aid deal will bring more scale and value to WBA's payer-partnership strategy. Despite rumors of trouble with the Federal Trade Commission’s review, I still think the deal will be completed in late 2016 or early 2017.

CVS Health successfully markets its pharmacy benefit manager with a diverse set of dispensing channels WBA is competing against CVS Health’s closed system by spinning an ever-wider web of partnerships and deals with every other non-CVS industry participant.

One thing seems clear: Mr. Pessina and WBA are not getting a raw deal from this ever-expanding network of drug channel relationships—especially since they never drink and bake.

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